201Lec08 - 201Lec08.PPT Receivables. Am o un ts d ue fro m...

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201Lec08.PPT 1 Receivables. .. Receivables. .. Am o unts  due  fro m  individua ls  a nd o the r c o m pa nie s  tha t a re   e xpe c te d to  b e  c o lle c te d in c a s h. Trade Receivables  a re  o we d b y  c us to m e rs  tha t re s ult fro m  the   s a le  o f g o o ds  a nd s e rvic e s . A/R  a re  no t s uppo rte d b y a  fo rm a l  do c um e nt. Accounts Accounts Receivable Receivable Accounts Accounts Receivable Receivable Notes Notes Receivable Receivable Notes Notes Receivable Receivable “Nontrade” (inte re s t,  lo a ns  to  e m plo ye e s  o r  o ffic e rs , inc o m e  ta x  re funds , e tc ). Other Other Receivables Receivables Other Other Receivables Receivables
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Balance sheet: What amount should be used? Income statement:   Whe n s ho uld b a d de b t e xpe ns e  b e  re c o rde d? Example: Assume Chuck Co. has: $1,000,000 of sales in 2011, its first year. All are on credit, terms net 90 days. Gross profit is 40%, operating expenses are $30,000. Now assume that half of all A/R are uncollectible due to poor credit screening and customer bankruptcies. Example: Assume Chuck Co. has: $1,000,000 of sales in 2011, its first year. All are on credit, terms net 90 days. Gross profit is 40%, operating expenses are $30,000. Now assume that half of all A/R are uncollectible due to poor credit screening and customer bankruptcies. 2 Issues regarding receivables addressed by GAAP: Issues regarding receivables addressed by GAAP: Issues regarding receivables addressed by GAAP: Issues regarding receivables addressed by GAAP:
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Direct Method Allowance Method A/R 1,000,000 A/R 1,000,000 - uncollectible - 500,000 Net realizable 500,000 ---------------------------------------------------------------------------- Sales 1,000,000 Sales 1,000,000 CGS -600,000 CGS -600,000 Gross profit 400,000 Gross profit 400,000 - Operating exp - 30,000 - Operating exp - 30,000 - Bad debt exp - 500,000 Net income 370,000 Net loss -130,000 Options Options   for 2011 Balance Sheet and Income Statement: 3
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All re c e iva ble s  s ho uld b e  re po rte d the ir . . .   Realizable Value This  is  the  ne t a m o unt tha t the  c o m pa ny c a n  reasonably  expect to  collect in cash . 4 GAAP Required Balance Sheet Presentation: GAAP Required Balance Sheet Presentation: GAAP Required Balance Sheet Presentation: GAAP Required Balance Sheet Presentation:
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Companies don’t know which or when specific receivables will be bad, so . . . . 5
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This note was uploaded on 03/08/2012 for the course BUS ADM 201 taught by Professor Konkel during the Spring '08 term at Wisconsin Milwaukee.

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201Lec08 - 201Lec08.PPT Receivables. Am o un ts d ue fro m...

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